Economic pressures are getting real for people this year, as higher mortgage rates continue to suck more money out of household budgets, and a swathe of recent job losses undermine income security. Infometrics’ latest economic forecasts show annual GDP and private consumption spending growth briefly turning negative in mid-2024, and for slower growth than had previously been expected to persist until the second half of next year. Record high net migration means that per-capita results look even worse, with household spending recording its biggest decline per person since 1992 (excluding the 2020 lockdown).

“The economy is being hit harder than expected a few months ago, with hopes of a soft landing disappearing in a flurry of housing market stress and rising unemployment,” says Infometrics Chief Forecaster Gareth Kiernan. “The resilience displayed by households during much of 2023 has been sorely tested by mortgage rates of over 7%, and there is little sign from the Reserve Bank of any relief this year.”

Inflation data published by Stats NZ earlier this week confirmed that price pressures continue to moderate across the economy, although near term risks remain from higher oil prices, persistent wage growth, and other areas of large cost increases such as insurance or local council rates. Infometrics forecasts that inflation will be back below 3%pa by early 2025, enabling the Reserve Bank to start cutting the official cash rate from November this year, from 5.5% to a neutral rate of 4% by the end of 2025.

Recent changes to migration policy will reinforce the effects of reducing business demand for additional workers, with the tougher entry criteria announced by the government leading to easing migration inflows throughout the next two years. Kiwi departure numbers are forecast to settle at a new higher level, reflecting a perception of better living and working conditions across in Australia that will continue to lure more people across the Tasman.

“It’s probably another 12 months before it will feel like the worst of the downturn is behind us,” says Mr Kiernan. “Both households and businesses will need to keep a close eye on costs and spending until mid-2025. Between then and 2027, lower interest rates, less contractionary fiscal policy, and the improving world economy will all contribute to an acceleration in economic growth back towards 3%pa.”

ENDS

More details about Infometrics forecasts can be found on the respective Building and Transport forecasts pages on the Infometrics website.